Shareholders v. Stakeholders: Evaluating Corporate Constituency Statutes Under the Takings Clause

Journal of Corporation Law, Vol, 24, No. 1, November 1998

Posted: 25 Aug 1998  

Lynda J. Oswald

University of Michigan, Stephen M. Ross School of Business

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Abstract

Over one-half of the states have enacted corporate constituency statutes, which permit managers to consider the interest of non-shareholder "stakeholders" in the corporation -- parties such as employees, customers, suppliers, and/or the local community. These statutes set the usual corporate law norm of shareholder primacy on its head. If managers need no longer act in the best interests of the shareholders, the value of the shareholders' ownership interest in the corporation is reduced, for their claim to residual earnings is weakened. This paper considers whether constituency statutes work an unconstitutional taking of private property in violation of the Fifth and Fourteenth Amendments. I conclude that the constituency statutes as currently drafted cannot withstand a Takings Clause analysis, but that the result intended by these statutes could be achieved through careful drafting and/or the use of other constitutional tools.

JEL Classification: H7, K2

Suggested Citation

Oswald, Lynda J., Shareholders v. Stakeholders: Evaluating Corporate Constituency Statutes Under the Takings Clause. Journal of Corporation Law, Vol, 24, No. 1, November 1998. Available at SSRN: https://ssrn.com/abstract=98720

Lynda J. Oswald (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

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